Saturday, February 20, 2010

"German officials are keen to criticize the southern periphery of the eurozone, but let’s face it – eurozone monetary policy was highly procyclical (exaggerating the boom and the bust, e.g., in Spain), and regulators looked the other way as northern/core banks extended credit to the Mediterranean and East European neighbors. The upside benefited German exporters; the downside is now being laid entirely at the door of “profligate” nations. Is this entirely fair and reasonable?"

Not to imply the Greeks are blameless, but where was the hot money pushing up Southern trade deficits coming from? Or, put another way, which large surplus-running European country has a penchant for Mediterranean property? As any decent economic textbook points out, 'every purchase is a sale'.

We finally have a debate about economic policy in Britain. Unlike in the US, where academic economists maintain blogs and engage in lively, even too lively, debate about the policy responses to the crisis, British economists have remained strangely silent.

The silence has been broken by an exchange of open letters, one arguing the need for a early action on the deficit to establish credibility and reduce the costs of long-term debt service, the other insisting that growth is the priority, and that cuts in spending would risk plunging the economy back into recession.

Strangely enough, the two positions are only different in terms of presentation and emphasis. Neither suggests ignoring the deficit, neither suggests slashing spending to deal with it. In the end, this exchange remains, like the economics debate in the UK in general, fairly anaemic. Odd, if you consider what a mess we're in. Maybe we've all given up?

Friday, February 19, 2010

A regional election poster in the Marche, as well as the ridiculous slogan 'priority to the Corridonians' (who?), shows that the Northern League has got to be the crudest racist party in the whole of Europe. Even Haider and Le Pen used allusion and innuendo half the time. Why is everyone in the rest of Europe so relaxed about these people running Italy?

I dream of a general strike of immigrants in Italy, so people could see what would be left of the Italian economy if the exploited mass of foreign labour were indeed spirited away, as so many Italians seem to want.

Happily, most immigrants seem to get on with making a better life for themselves, disregarding the pathetic theatre Italian politics has become under Berlusconi. I wonder if their children will be quite so forgiving.

Tuesday, February 9, 2010

Having spent most of my academic career studying Southern Europe, I should be excited that Southern Europe is in the headlines. Obviously, it's for the wrong reasons - their budget deficits are spooking investors and threatening the stability of the euro area. On top of that, someone with an eye for an acronym and a thinly veiled contempt for Mediterranean civilization has christened this group of countries the PIGS - or PIIGS if we include the Irish, who share a big fiscal crisis with a recent history of poverty, migration and having to put up with Northern European condescension.

Anyway, the story is an interesting one, particularly since Spain, Greece and especially Ireland were looking like spectacular success stories until a year or so ago. As ever, it takes Paul Krugman to explain what's going on: these countries are the victims of the kind of asymmetric shock that many theorized long ago could make the Euro unworkable. Unlike the UK, which has also suffered a huge demand shock and has desperate fiscal problems, Spain and Greece cannot adjust their currency, which remains locked at the same rate to that of Germany and other trading partners. So, either wages have to drop in nominal as well as terms (anyone volunteering?) or unemployment will have to rise sharply. As indeed it has. What's more, a historic deficit of investor trust makes government borrowing more expensive for these countries - even though Spain was running a budget surplus until 2008 and had rather low public debt (must be because they speak Spanish in Argentina).

The interesting question is, how long can Italy, the paradigmatic fiscal basket case of Europe's Southern frontier, stay out of this? Italy's demand shock has been less acute, because it didn't enjoy the pre-2009 boom, for a variety of reasons. But its fiscal position is still bad, and its political system is even less equipped to manage shared sacrifice than Spain or Greece. It has the same competitiveness problems of the others, and a bigger public debt. We'll see.

All the fuss about climate change has distracted me from something of real historic significance : Hull City beating Manchester City's oil-rich no-hopers 2-1 at the KC Stadium.

Just when you thought the Tigers were on the way back down to the real world, along comes 19 year old Tom Cairney, who looks as though he has been playing in the Premiership all his life. He's played three games, City have drawn two and won one of them.

In a puzzling, but welcome, move, the Guardian has published a 28,000 word report about the climate science controversy, inviting expert comment and potentially revision. I suppose the idea is that this is the way the IPCC or the CRU ought to behave, and the Guardian is showing the way. The Guardian is in an awkward position on this: on the one hand it can't resist a good story, on the other it is wary of joining the Daily Telegraph and assorted cranks in trashing climate science on the basis that climate scientists are not always good chaps. So I guess this way they get to have their cake and eat it.

Friday, February 5, 2010

I got so annoyed by the Guardian's sensationalistic coverage of the UEA Climate Research Unit emails, that I wrote this letter to the editor. My argument is basically that the incriminating emails probably don't significantly undermine the findings of Phil Jones and his team, and the whole story has been overblown - scientific research is always imperfect, and there are always issues about the reliability of data. And, sometimes, academics behave badly over email. Amazing but true.

Today in the same newspaper Simon Jenkins writes an awful article inviting scientists to 'get off their pedestal and join the common herd'. I think this kind of comment is actually quite revealing about the mixture of suspicion and awe in which scientists are held. The problem is that Simon Jenkins is totally incapable of evaluating scientific research, and this makes him feel quite uncomfortable when research findings are shaping our lives. Actually I am not much better placed - my knowledge of climate research doesn't get much beyond Jenkins'. But I think it's very unlikely that the vast majority of climate scientists across the world have been duped by a handful of dodgy researchers. Why? Because academics love trashing each others' work.

The inability - or refusal - to understand the way science works is also the reason why Jenkins imagines that scientists form a monolithic consensus, which ordinary folks are unable to challenge. The truth is that the world of scholarly research is a world which revolves around argument and disagreement: present a paper at a conference and, if it is at all interesting, hands will go up as other researchers seek to challenge and scrutinize your findings. The main reason for this is probably vanity - asking a tricky question and putting another scholar on the spot wins you respect and standing. But the fortunate side effect is that poor research has a good chance of being revealed as such.

Of course, if Simon Jenkins and others can't understand science, then this does explain why science operates without much outside scrutiny. But how else are we supposed to do it? Should fundamentalist Christians get to decide who gets research grants in Texan universities? Should research applications be put to the popular vote to decide who gets funding? There's not much alternative to letting science get on with it. But it would be nice if intelligent and well educated people - like Jenkins - could be bothered to read a book or two about the history and philosophy of science before sounding off about pedestals and such like. Not to mention Guardian science correspondent Pearce, who clearly does understand science, but can write three pages about the UEA research group and only briefly mention that the controversy about Chinese weather stations barely affects the estimates of global temperature change.

PS A funny thing happened just a day or two ago. Andrew Wakefield, whose research on the purported link between MMR and autism provoked a newspaper campaign against the vaccine, leading many parents to opt out, was declared 'irresponsible' by the General Medical Council and risks being struck off. Wakefield, more or less alone, challenged the vaccine, and practically the whole medical establishment rubbished his findings. 10 years and millions of missed vaccines later, Wakefield's work - and his professional ethics - have been definitively debunked. The Lancet has regretted publishing his work on MMR. Does 'getting off the pedestal' mean treating Wakefield's work as valid, since it challenges the 'establishment'? The majority view can certainly be wrong, but for an individual to be wrong is an awful lot easier.

So, after Flavio Delbono and Tiger Woods (OK, most people have never heard of Delbono, but... read previous post), now it's the turn of John Terry (who I hope is distracted by the fuss and gifts a couple to Hull City tonight. A vain hope I know).

In case you've missed it, John Terry has apparently conducted an affair with an underwear model, despite being married and elected 'Dad of the Year 2008' by HP Sauce. OK, so most of you might think that was the kind of behaviour generally expected - even required - of our top footballers. But, this is really serious. Because, the model in question had been the girlfriend of Wayne Bridge, Terry's England team-mate (revealing an unsurprising and depressingly proprietal view of women on the part of our sporting heroes).

I'm a bit puzzled as to this surge of moralistic angst. Is it a reaction to the collapse of secular western consumerist capitalism? Or the fact that newspapers would rather entertain their readers than give them the grim information about what is actually happening in the world?

Monday, February 1, 2010

So Bologna has lost its mayor. Flavio Delbono, who saw off a tough challenge from street-fighting Alfredo Cazzola, lasted less than a year in Palazzo d'Accursio. The problem? A woman!

Well, to be more precise, a woman whom, it is suggested, our first citizen took on numerous jamborees at the expense of Emilia-Romagna's taxpayers, in Flavio's previous job (Vice-President of the Region).

What is Italy coming to if a man has to resign over an affair, some misuse of public funds and a whiff of corruption? Surely Berlusconi must intervene?

[F]amilies across the country are tightening their belts and making tough decisions. The federal government should do the same. (Applause.) So tonight, I’m proposing specific steps to pay for the trillion dollars that it took to rescue the economy last year.

Obama, of course, understands Keynes even if he has probably never read him. But he has to pretend that the best way to deal with a private sector demand shock is to add a public sector one to it.

Thankfully, in Britain, none of our politicians has the guts to broach the spending cuts that this kind of Hooverism would entail: Cameron has now come up with the formula that he would deal with the deficit through 'swift action' which would not, however, be 'extensive'. In other words, let the deficit rip to sustain voter sympathy, and incidentally, consumer demand.

Maybe elections - condemned by much political economy as a source of bad economic policy - can end up being good for policy making. If elites are convinced that sado-monetarism is the best way but can't persuade the public to take the pain, then we will not get sado-monetarism. Keynesianism worked politically in the postwar 'Golden Age' because it not only seemed to work economically, but it avoided imposing gratuitous pain on median voters.

What changed in the 1980s and 1990s to turn that around? Did median voters really do well out of central bank independence and spending restraint, or did they just become convinced that they would? Or did the median voter somehow count for less after the 70s? (Answers coming soon....)